The Hidden Cost of First-Time CEOs

Why Boards May Want to Reevaluate the CEOs They’re Picking

When boards go searching for a new CEO, they tend to reach for fresh faces. But a new analysis suggests that this instinct may be costing shareholders.

A Korn Ferry analysis found that the stock performance of companies with first-time CEOs lagged that of veteran CEOs by a wide margin. Indeed, the annual stock return of a company that hired a first-timer averaged 16.3%, versus 36.3% for a company that chose an experienced CEO. Yet some 80% of firms are selecting newcomers to helm their companies, a move that appears to create some risks for firms, with Korn Ferry’s  analysis suggesting prior CEO experience is associated with stronger enterprise value expansion.

The comparisons come at a delicate time for boards: in the past two years, CEOs have been leaving or fired at a record clip, leaving firms sometimes in a scramble for new leadership. With so many openings, it may be possible that some organizations have no choice but to select an internal or outside candidate that lacks CEO experience. But experts say the results could be a signal that boards need to better analyze their preferences.

To be sure, the analysis only looked at one-year returns—typically too short a window for CEOs to materially influence strategy execution, culture or long‑term value creation. As a result, the findings should be viewed as directional rather than predictive, particularly given that early performance often reflects market cycles and legacy decisions more than new leadership actions.

What’s more, market context proved to be an even stronger driver of short-term results. Companies without a CEO change materially outperformed new-CEO firms on both stock price (42.6% vs. 18.9%) and market cap growth (42.3% vs. 22.2%), reinforcing the idea that stability and broader market dynamics can outweigh leadership changes in the near term. At the same time, CEOs who had been promoted from within performed competitively, with stock price growth averaging 20%, while first-time external CEOs displayed the weakest overall performance.

Given the strong performance of CEOs promoted from within, experts say boards need to ensure succession planning focuses on building a strong pipeline of talent years in advance. “There’s a significant jump to get into the CEO role and the data show developing those capabilities pays off,” says Jane Edison Stevenson, co-lead of Korn Ferry’s CEO and Board Services practice. One of the takeaways for her is that longitudinal agility and the ability to build a following fast are drivers of success. “Making the right decisions about who needs to be around the table is critical,” she says.

For her part, Korn Ferry vice chair Tierney Remick notes that just because someone hasn’t been a CEO before doesn’t mean they can’t perform well. Many come in with new visions for the role that veteran CEOs might not have or be open to more change.  Companies with strong leadership development programs can nurture these first-timers into great leaders. And for Remick, the bottom line are the individuals’ traits and abilities to handle the pressure of the job. “CEO experience alone isn't something that makes someone successful,” she says. “It’s about having self-awareness, courage, and the ability to balance competing priorities.”

Check out Korn Ferry’s talent development capabilities.